The Madras High Court ordered that, from September 1, all new vehicles sold in Tamil Nadu should have a 5-year bumper-to-bumper insurance cover.
Awareness about insurance is growing with more companies and hundreds of policy options driven by competitive marketing and aggressive sales.
The increase in risk perception from the customer’s side is only in select areas, and insurers concentrate their marketing in those areas broadly.
Take healthcare costs. Everybody believes they will fall sick one day, inevitably. Mass health insurance programmes sponsored by governments have started demonstrating value. Loss or damage to property like homes and vehicles don’t appear that imminent and don’t evoke enough fear or caution to seek out an insurance policy.
The Madras High Court had recently ordered that, from September 1 this year, all new vehicles sold in Tamil Nadu should have a 5-year bumper-to-bumper insurance cover.
This is being read as a Motor Third-Party (TP) liability cover, which is anyway statutory under the Motor Vehicles Act, 1988, plus an Own Damage cover plus personal-accident cover for owner, driver and passengers.
An inbuilt ₹1 lakh personal accident cover for owner-cum-driver has been compulsory for the last few years as part of the OD cover. This costs ₹100 for a death-only cover.
The recent order includes passengers and separate owner and driver covers as well, extent and nature of cover unspecified. Own Damage cover for the vehicle is the other addition. All in all, it’s a good thing to have.
Let us see what this means in terms of costs and benefits for you as a vehicle owner and the one who is going to pay for it all.
If you buy a car worth ₹6 lakh, the TP liability cover will cost about ₹3,500 and the OD cover about ₹10,000 for one year.
If you renewed this every year for the first 5 years, the TP premium will change as per annual review by the Insurance Regulatory and Development Authority of India. Your OD premium will decrease each year since the Insured Estimated Value (the sum insured) of the vehicle will reduce with depreciation. Also, you would accumulate a no-claim bonus in the form of a premium discount.
An annual PA, death-only cover for owner, driver and four passengers for ₹1 lakh each will cost ₹600. A longer period of insurance can mean a discount in the premium rate.
Put together, you will pay ₹56,500 towards insurance when you buy the car. I am not calculating any increase in TP rate or the reductions in OD premium. If you took the same covers you would be paying 20% of this when you register the vehicle. In today’s scenario, you will pay all of it in one go. So, you will pay about 5% more on your total acquisition cost.
Free of worry
For this, you get all the benefits of the insurance and can be worry-free for 5 years as you don’t have to remember renewal dates. You won’t have to field pesky calls from sundry insurance companies to renew your vehicle policy with them, at least for these five years!
A quick recap. All motorised vehicles should, by law, have a third-party liability insurance which covers any legal claims on the owner of the vehicle when it causes third-party property damage, third-party personal injury or third-party death.
The other part of motor insurance is called the Own Damage cover. This is optional. If you take both together, it is called a Motor Comprehensive policy.
The common practice is to buy a comprehensive policy along with a new vehicle and drop all but the statutory TP insurance on renewal.
If there is a hire-purchase agreement, the comprehensive cover has to be maintained until the loan is paid off as part of the conditions.
Many stop with the bare minimum of TP cover alone when buying a vehicle and either renew or ignore it in later years. This has led to the biggest threat we have on our roads viz. vehicles without liability cover. Estimates put this between 40-60% of the vehicles on roads.
This points to laxity and utter disregard for not only the law and for personal property and is also a failure of follow-up by the industry and its distribution system.
With statutory cover being treated like this, it is not surprising that OD cover or PA cover for those using the vehicle is widely ignored as well.
Just like bank loans, insurance too, is most needed by the one who cannot afford it. Because the loss would be even less affordable.
Affordability of five years premium upfront will now become an arguing point. As said earlier, it is a 5% add on to your vehicle acquisition cost, and will become part of the vehicle loan if you are opting for it.
Similar complaints came up with the Life Time Road Tax when it was implemented two decades ago. But now, it is just a part of your cost of acquisition; you pay your dues and are free of that responsibility for that period.
A similar practical outlook is warranted towards insurance cover and premium.After all, you just have to look at the cost of the cover versus the financial coverage you get in return.
(The writer is a business journalist specialising in insurance & corporate history)